Google sees a window of opportunity to launch its own operating system

The Internet search giant takes aim at Microsoft's dominant product with Chrome OS, which is targeted at the netbook market.

Google Inc.'s plan to launch its own computer operating system is a direct assault at the heart of Microsoft Corp., and its bold move could fundamentally change the way personal computers are used.

Under Google's new operating system, dubbed Chrome OS, people would play games, store photos and work on spreadsheets free of charge via the Internet, reducing the need for powerful software and massive hard drives on their personal computers.

"If Google can make it faster, cheaper and easier for you to get on the Internet, they end up with more eyeballs, more fingertips and more activity," said Richard Doherty, an analyst with the Envisioneering Group, a technology consulting firm in Seaford, N.Y.

Although Google seized the spotlight with its announcement of the new operating system late Tuesday, it's a sure bet that Microsoft will fight back.

"The company is stuffed with cash, has a massive labor force and an entrenched operating system in almost every PC in the world," said Laura Martin, an analyst with Soleil Securities. Microsoft's operating systems, the brains that runs computers, are in more than 90% of the world's PCs.

Instead of selling software like Microsoft, Google would make its money by selling advertising -- as it does now through its powerful search engine. More than 65% of searches on the Internet go through Google's search engine, compared with 20% for Yahoo and 8% for Microsoft.

Over the years, the Mountain View, Calif., technology company has tried to chip away at Microsoft's market share. Its Google Docs application is a direct competitor to Microsoft's Office. Google's Gmail tries to go head-to-head with Microsoft's Outlook e-mail manager. And Google's Chrome Web browser takes on Microsoft's Internet Explorer.

Google's operating system would tie many of its products together into one neat package, said Michael Lawson, senior associate dean of the Boston University School of Management and professor of information systems.

"This would make Google a more important platform," Lawson said. "The operating system has been one of the components in Google's architecture that was missing."

But Microsoft has some initiatives of its own. One of those is Bing, its new Internet search engine that takes aim at Google's core business.

And this year, Microsoft plans to unveil a stripped-down operating system aimed at netbooks -- small, low-cost laptops that cost as little as $200 and have been adopted by business travelers and consumers alike who want to check e-mail, surf the Web or watch online videos. That could blunt Google's move into operating systems, said Scott Kessler, an information technology analyst at Standard & Poor's Equity Research.

Google said its operating system is designed with netbooks in mind. It also said it would allow outside developers to freely modify the software for their own uses, suggesting that it would give away the operating system.

Microsoft charges about $200 for a copy of Windows Vista at retail stores. It also licenses the software at a discount to computer makers such as Hewlett-Packard, Dell and Toshiba.

But as computer prices plummet, the cost of the operating system becomes a bigger issue, and one that Google no doubt hopes to exploit, analysts said.

"The operating system is the single most expensive item in a laptop," Doherty said. "When you have companies talking about $99 laptops, Microsoft would need to do a lot more discounting to compete. Especially when they're competing with free."

Although Google's move takes aim at all existing operating systems, including Apple Inc.'s OS X Snow Leopard, it's less likely to affect Apple's Mac users, who are willing to pay a premium for a more polished experience. With laptop prices starting at $999, Apple has eschewed the low-end netbook market, at which Google is targeting its operating system.

Instead, Google's new software could be more damaging to Microsoft, which helped spur the mass adoption of personal computers in the 1980s and 1990s. Its MS-DOS and then Windows operating systems helped make PCs more accessible to ordinary users.

Now, the Redmond, Wash., giant is being threatened by another democratizing force -- the Internet.

By relying on faraway data centers and computer servers to do the heavy lifting, users won't need powerful, expensive PCs. The concept, called cloud computing, has long been a focus for Google Chief Executive Eric Schmidt, who devoted his doctoral dissertation at UC Berkeley to the topic.

"What is driving all of this is a desire to reduce complexity and cost," said Andy Bechtolsheim, one of the original investors in Google and co-founder of Arista Networks, a Silicon Valley cloud computing start-up.

"It seems very likely that within the next five years, most mission-critical applications . . . can be accessed by any browser-capable device, including your cellphone."

Still, Google's success in loosening Microsoft's grip on the PC market is hardly a foregone conclusion.

Despite Google's vaunted stock price and perception as a model for a "new" economy, Microsoft is actually a bigger and better-capitalized company, Martin said. And Microsoft isn't afraid to attack Google on its home turf, as it showed with its introduction of Bing two months ago.

Meanwhile many of Google's new products "have not caught on," said Ben Schachter, an analyst with Broadpoint AmTech.

"They've released a plethora of products. Many of them have withered on the vine. The ones that have caught on are the ones that are so much better."